Consign of the Times

EBay's popularity is spawning a new niche: brick-and-mortar
stores that help people who are too busy or confused by eBay's
system to sell their goods on the site. After all, selling on eBay
requires time and effort. Sellers have to take digital photographs
and write descriptions of the merchandise, arrange to get paid,
package their goods, and bring the packages to a shipper.

In the past year, many companies-including AuctionDrop Inc.,
AuctionWagon
Inc., Picture It Sold, QuikDrop Inc. and Snappy
Auctions-have launched eBay drop-off stores to help with these
hassles. Most of these are in California and focus on individuals,
but plan to expand throughout the country and to the B2B
market.

EBay drop-off stores are similar to traditional consignment
shops in that they charge sellers a commission for selling an item.
They don't charge upfront fees for their basic service, instead
earning commissions based on an item's final sale price.
Customers usually pay separate fees charged by eBay, ranging from
1.5 to 5.25 percent of the final price.

One of the most successful companies in the market is San
Carlos, California-based AuctionDrop, which has opened five San
Francisco Bay area stores since March 2003 and plans to open 15
more California locations and 20 East Coast stores this year.
AuctionDrop has raised more than $6 million in VC financing, says
CEO and co-founder Randy Adams. So far, the 75-employee company has
processed more than 15,000 items and earned annual revenues of over
$1 million, by charging a commission totaling 20 to 38 percent of
the final price. The percentage drops as the selling price rises,
and the company's customers pay eBay's seller fees.

The key to AuctionDrop's success is its hub system-all goods
are shipped to the company's 30,000-square-foot processing
location, where an automated conveyor system routes goods to
specialists who determine the value of items and prepare them to be
sold. The company plans to open regional hubs in 2004. "We
apply the economies of scale and the process engineering that make
it inexpensive to put things up on eBay," says Adams, 51.

Meanwhile, Los Angeles-based AuctionWagon, founded last year by
Joshua MacAdam and Devin Bailey, both 24, was self-financed for
less than $1 million and will not set up a processing hub.
"Keeping overhead low is essential," says MacAdam.
"By staying local, we're able to maintain low commission
rates." AuctionWagon, which offers door-to-door pickup, takes
a 20 percent commission off the final sale, with a $15 minimum
commission. AuctionWagon's only store opened in November 2003.
The 10-employee company projects sales of more than $1 million in
2004 and will have its second location in Los Angeles operational
this quarter.

Anyone contemplating entering this business should be aware that
eBay drop-off shops are complex, expensive to start and can be
technologically challenging. "This is an operations-heavy
business," says Rhonda Abrams, president of Palo Alto,
California-based The Planning Shop, a publisher specializing in
business planning. "You're taking physical possession of
and handling many types of products. That's different from
having a sandwich shop."

Those who nail the concept, however, could find themselves at
the lucrative forefront of the next big thing. Launching
independently isn't the only option, either: AuctionDrop,
AuctionWagon and Snappy Auctions plan to offer franchises soon.